XREF LIMITED — Interim / Quarterly Report 2012

Dec 11, 2012

FINANCIAL REPORT

FOR HALF YEAR ENDED 30 SEPTEMBER 2012

	Page
Directors' Report	2-3
Condensed Consolidated Statement of Comprehensive Income	4
Condensed Consolidated Statement of Changes in Equity	5
Condensed Consolidated Statement of Financial Position	6
Condensed Consolidated Statement of Cash Flows	7
Notes to the Condensed Financial Statements	8-18
Auditor's Review	19

DIRECTORS' REPORT

FOR HALF YEAR ENDED 30 SEPTEMBER 2012

Your directors have pleasure in presenting the interim financial report for the half year ended 30 September 2012.

DIRECTORS

The names of directors who held office during or since the end of the half year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

John C. Quinn	(Non-Executive Chairman)
Stephen J. McPhail	(Managing Director)
Fu La	(Executive Director)
Christopher D. Castle	(Non-Executive Director)

REVIEW OF OPERATIONS

The net loss of the Group for the half year ended 30 September 2012 amounted \$6,008,953 (half year ended 30 September 2011: \$220,531)

EXPLORATION ACTIVITIES

Field activity for the six months to 30 September was spread over King Solomon's three tenements including the porphyry copper project at Bu Dun Hua (BDH), Mud-house gold prospect at Sonid North and the Three Eagles and East Ridge gold prospects at Naogaoshandu.

Bu Dun Hua Porphyry Copper Project (100% King Solomon)

Three diamond drill-holes were completed at BDH for 1,526 metres as part of scout drilling program aimed at testing the remaining magnetic anomalies towards the eastern and northeastern part of the tenement for porphyry-type copper mineralisation.

All three holes encountered broad hydrothermal alteration, occasionally cut by andesite dykes, but there was no sign of any intrusive body. Copper geochemistry was generally subdued.

No further drilling is planned.

Sonid North Gold project (100% King Solomon)

Exploration at Sonid North has been principally focused at the central part of Mud-house gold prospect as part of an infill drilling program to define a potential underground mineral resource. Thirteen diamond drill-holes for 3,226 metres had been completed by 30 September. Most holes have intersected narrow, gold-arsenic mineralised quartz + calcite veins or shears. While there is a general continuity of vein structures, gold grade distribution along these veins is erratic. Almost all holes returned intercepts above 0.1g/t Au with three yielding >1.0 g/t Au, including:

SND022	1m @ 5.61g/t Au from 93m
SND023	0.55m @ 2.63g/t Au from 181.5m 1.1m @ 1.86g/t Au from 222.9m 0.35m @ 1.26g/t Au from 252.6m
SND028	0.95m @ 8.58g/t Au from 85.55m

There exists potential for a small high grade narrow vein resource which may be mineable by local miners. The company intends to sell this project.

Naogaoshandu Gold project (100% King Solomon)

The Naogaoshandu project was revisited after discovery of high grade gold in outcrops. A decision was made to conduct a limited Induced Polarization survey over Three Eagles and East Ridge prospects. The Three Eagles prospect was previously drill-tested in 2007 with 7 RC holes for a possible epithermal gold mineralisation. East Ridge prospect became a key target this year after visible gold specks were found in outcrops and confirmed in trenches hosted in quartz-silica veins and strongly sheared wall rock, with some associated copper mineralisation in the form of malachite and cuprite.

A limited diamond drilling program was carried out on the two prospects after the end of the period. At Three Eagles, three holes were completed for 892 metres targeting a high chargeability IP anomaly and the projected mineralised zones identified from the previous RC drilling. At East Ridge, four holes were completed for 1244 metres aimed at testing the nearsurface Au/Cu geochemical anomaly and deeper IP chargeability anomaly targets.

Significant assays (>0.1g/t Au) were returned in the first hole at Three Eagles with 3.6m @ 0.54g/t Au from 71m, which is associated with white massive quartz vein in that interval. At East Ridge, the best intercepts were returned from first hole with 9.2m @ 0.73g/t Au from 50m, including the best assay of 2.01g/t Au from 53.5m.

The drilling overall has failed to confirm presence of significant sulphide occurrences that may be attributed to the high IP chargeability anomaly.

The information on mineralisation contained in this announcement accurately reflects information compiled by A Latorre M AusIMM, Exploration Manager, a Competent Person (as defined by the Australasian Code for Reporting of Identified Mineral Resources and Ore Reserves), who has relevant experience in relation to such mineralisation and has consented to the inclusion of such information in this announcement.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

Unaudited Unaudited Note \$ \$ Other Income Dividend Income - 377 Foreign Exchange Gain 6,596 210,966 (Loss) / Gain on Sale from Fixed Assets (1,693) 21,605 Interest Received 9,805 60,596 Lease Income 21,390 38,438 ---------- ---------- Total Other Income 36,098 331,982 Expenses Amortisation 30 301 Depreciation 10,050 9,190 Directors' Fees 50,000 46,263 Share Option Expense 54,220 52,253 Employee Benefits Expense 20,036 10,565 Office Expenses 55,702 115,916 Professional Fees 145,955 144,553 Other Expenses 80,905 155,480 Write Off of Exploration Expenditure 3, 6 5,628,144 17,884 ---------- ---------- Total Expenses 6,045,042 552,405 Loss before Tax (6,008,944) (220,423) Income Tax Expense 9 108 ---------- ---------- Loss from Continuing Operations attributable to the Owners of the Company (6,008,953) (220,531) ---------- ---------- Loss attributable to the Owners of the Company (6,008,953) (220,531) Other Comprehensive Income Currency Translation Differences (11,211) 28,573 ----------- ----------- Total Comprehensive Income net of tax attributable to Owners of the Company (6,020,164) (191,958) ====== ====== \$/share \$/share Loss Per Share Basic Loss per Share 9 From continuing operations (0.04) (0.00) From discontinuing operations (0.04) (0.00) Diluted Loss per Share 9 From continuing operations (0.04) (0.00) From discontinuing operations (0.04) (0.00)		30 September 2012	30 September 2011

The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

	Note	Share Capital \$	Share Options \$	Foreign Currency Translation Reserve \$	Accumulated Loss \$	Total Shareholder Funds \$
Equity as at 1 April 2011		16,603,068	546,902	428,352	(9,314,065)	8,264,257
Comprehensive Income: Loss for Period Other Comprehensive Income:		-	-	-	(220,531)	(220,531)
Currency Translation Differences		-	-	28,573	-	28,573
Total Comprehensive Income for the Period		-	-	28,573	(220,531)	(191,958)
Transactions with owners: Options Expense Options Expired	7 7	- 389,882	52,253 (389,882)	- -	- -	52,253
Total transactions with Owners: Issued Capital Raising Expenses		389,882 -	(337,629) -	- -	- -	52,253
Equity as at 30 September 2011		16,992,950	209,273	456,925	(9,534,596)	8,124,552
Equity as at 1 April 2012		16,992,950	282,965	436,994	(10,204,174)	7,508,735
Comprehensive Income: Loss for Period		-	-	-	(6,008,953)	(6,008,953)
Other Comprehensive Income: Currency Translation Differences		-	-	(11,211)	-	(11,211)
Total Comprehensive Income for the Period		-	-	(11,211)	(6,008,953)	(6,020,164)
Transactions with owners: Options Expense	7	-	54,220	-	-	54,220
Shares Issued	7	510,072		-	-	510,072
Capital Raising Costs Total transactions with Owners:	7	(34,175) 475,897	- 54,220	- -	- -	(34,175) 530,117
Equity as at 30 September 2012		17,468,847	337,185	425,783	(16,213,127)	2,018,688

KING SOLOMON MINES LIMITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2012

	Note	30 September 2012 Unaudited \$	31 March 2012 Audited \$	30 September 2011 Unaudited \$
SHAREHOLDERS' FUNDS
Share Capital	7	17,468,847	16,992,950	16,992,950
Share Options	7	337,185	282,965	209,273
Foreign Currency Translation Reserve		425,783	436,994	456,925
Accumulated Losses		(16,213,127)	(10,204,174)	(9,534,596)
TOTAL FUNDS EMPLOYED		-------------- 2,018,688	-------------- 7,508,735	-------------- 8,124,552
REPRESENTED BY:		========	========	========
CURRENT ASSETS
Cash and Cash Equivalents	5	850,922	1,402,197	2,866,370
Prepayments		7,218	16,761	9,354
Other Receivables - Related Parties	12	842,199	842,459	6,638
Other Receivables - Tax on Interest		3,188	28,092	18,650
Other Receivables - Other		85,018	66,619	159,915
Property for Resale		304,595 --------------	304,762 --------------	- --------------
Total Current Assets		2,093,140	2,660,890	3,060,927
CURRENT LIABILITIES
Accounts Payable - Related Parties	12	(884,452)	(926,856)	(42,477)
Accounts Payable - Other		(433,375)	(181,860)	(540,261)
Total Current Liabilities		-------------- (1,317,827)	-------------- (1,108,716)	-------------- (582,738)
NET CURRENT ASSETS		-------------- 775,313	-------------- 1,552,174	-------------- 2,478,189
NON CURRENT ASSETS
Property Plant and Equipment		293,152	344,862	751,756
Intangible Assets		223	345	9,000
Exploration and Evaluation Assets	6	950,000 --------------	5,611,354 --------------	4,885,607 --------------
Total Non Current Assets		1,243,375	5,956,561	5,646,363
NET ASSETS		-------------- 2,018,688	-------------- 7,508,735	-------------- 8,124,552
On behalf of the Board		========	========	========

Stephen McPhail Director 11 December 2012 John Quinn Director 11 December 2012

The above condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

	Note	30 September 2012 Unaudited \$	30 September 2011 Unaudited \$
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was received from:
Interest Dividends		11,106 -	66,791 269
Lease		21,390	-
Withholding Tax on Interest		28,120 ----------	16,761 ----------
		60,616	83,821
Cash was applied to: Payments to suppliers		495,629	381,233
Withholding Tax on Interest		3,225 ------------	19,834 ------------
		498,854	401,067
Net cash flow - Operating activities	10	(438,238)	(317,246)
CASH FLOWS FROM INVESTING ACTIVITIES Cash was received from:
Sale of Property Plant and Equipment		5,879	98,267
		------------ 5,879	------------ 98,267
Cash was applied to:
Purchase of Intangible Assets Purchase of Property Plant and Equipment		- -	10,204 567,267
Exploration Expenditure		599,978 ------------	1,578,878 ------------
		599,978	2,156,349
Net cash flow - Investing activities		(594,099)	(2,058,082)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was received from Issue of Shares		510,072	-
Cash was applied to Share Raising expenses		(26,504) ----------	- ----------
Net cash flow - Financing activities		483,568	-
Net decrease in cash and cash equivalents		--------------- (548,769)	--------------- (2,375,328)
Cash and cash equivalents at Beginning of Period Effects of exchange rate changes on cash and cash equivalents		1,402,197 (2,506) ---------------	5,129,300 112,398 ---------------
Cash at End of Period		850,922 ========	2,866,370 ========
Represented by:
Cash at Bank	5	350,922	585,286
Short Term Bank deposits	5	500,000 ---------------	2,281,084 ---------------
Cash at End of Period	5	850,922	2,866,370
		========	========

The above condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

1. GENERAL INFORMATION

These financial statements are presented in Australian Dollars being the Group's presentation currency unless otherwise noted.

King Solomon Mines Limited ('the Company') and its subsidiary (together 'the Group') were incorporated for the purpose of exploring and developing gold, copper and other metallic deposits in China and are profit oriented entities.

The Company is a limited liability company incorporated on 28 January 2003 and domiciled in New Zealand. The address of its registered office is 83 Fisher Parade, Sunnyhills, Auckland, 2010.

Going concern

The financial statements of the Group have been prepared on a going concern basis.

The use of the going concern assumption reflects the Board's cash forecasting for the next year. Further capital of \$431,363 was raised in October 2012. The results of drilling campaigns subsequent to balance date have not been favourable. As such the Group does not plan to recommence drilling operations. The Board intends to sell all tenements and has refocused attention to investigating all options for the further operations of the Group. This may include purchase of new tenements or a decision to wind up operations. If the Board does intend to recommence exploration and development activities then additional capital would be needed to fund such expenditure. The Board has sufficient funds to pay its existing commitments as they fall due.

These financial statements do not include any adjustments that may need to be made to reflect the situation should the Group be unable to obtain future funding to recommence any exploration operations (if it follows that course of action) and/or determines to wind-up the Group. Such adjustments may include assets being realised at amounts other than the amounts at which they are currently recorded in the statement of financial position. In addition, the Group may have to provide for further liabilities that may arise and to reclassify certain non-current assets as current in the statement of financial position.

These condensed consolidated financial statements were approved by the Board of Directors on 11 December 2012.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The half yearly financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing activities of the Group as the full financial report. Accordingly, this report should be read in conjunction with the Annual Financial Report of King Solomon Mines Limited for the year ended 31 March 2012.

The principal accounting policies applied in the preparation of these condensed consolidated financial statements of the Group are the same as those followed in the Annual Report for the year ended 31 March 2012.

Basis of preparation

The Group is a profit oriented entity.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

The condensed consolidated financial statements of the Group have been prepared in accordance with IAS 34 and NZ IAS 34 which deal with Interim Financial Reporting, and follow Generally Accepted Accounting Practice in New Zealand.

The condensed consolidated financial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993, and should be read in conjunction with the annual financial statements for the year ended 31 March 2012, which have been prepared in accordance with NZ IFRSs and IFRS.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

The review of capitalised exploration expenditure at 30 September 2012 resulted in a write off for impairment of \$5,628,144 (31 March 2012: \$24,140, 30 September 2011: \$17,884). Write offs reflect exploration results and commodity market conditions that do not justify the carrying value of exploration costs. The carrying value of exploration and evaluation assets after the impairment is considered to be recoverable through sale and is based on management's estimation of the expected reserves and sales prices for each asset.

4. SEGMENT INFORMATION

Management has determined the operating segments based on the reports reviewed by The King Solomon Mines Limited Board which is responsible for making strategic decisions.

As at 30 September 2012, the Group is organised into one main business segment; the activity of exploring and developing gold, copper and other metallic deposits.

As there is only one main segment as at 30 September 2012 the disclosures on the face of the Condensed Consolidated Statement of Comprehensive Income and the Statement of Financial Position represent the Group's one business segment.

Geographical Information:

The Group operates its business of exploration in China with the bulk of the administrative functions being performed in New Zealand and Australia.

This is demonstrated by the geographical breakdown of non-current assets shown in total on the Statement of Financial Position:

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

30 September 2011	New Zealand Unaudited \$	China Unaudited \$	Consolidated Unaudited \$
Property Plant and Equipment	7,963	743,793	751,756
Exploration and Evaluation Assets	-	4,885,607	4,885,607
Total Non Current Assets	7,963	5,629,400	5,637,363
	New Zealand Audited	China Audited	Consolidated Audited
31 March 2012	\$	\$	\$
Property Plant and Equipment	8,978	335,884	344,862
Exploration and Evaluation Assets	-	5,611,354	5,611,354
Total Non Current Assets	8,978	5,947,238	5,956,216
	New Zealand	China	Consolidated
	Unaudited	Unaudited	Unaudited
30 September 2012	\$	\$	\$
Property Plant and Equipment	6,296	286,856	293,152
Exploration and Evaluation Assets	-	950,000	950,000
Total Non Current Assets	6,296	1,236,856	1,243,152

5. CASH AND CASH EQUIVALENTS

	30 September	31 March	30 September
	2012	2012	2011
	Unaudited	Audited	Unaudited
	\$	\$	\$
Cash	460	610	781
Cash at Bank	350,462	888,204	584,505
Short Term Bank Deposits	500,000	513,383	2,281,084
	850,922	1,402,197	2,866,370

6. EXPLORATION AND EVALUATION INCOME AND EXPENDITURE

The Group was still in the exploration phase of its operations in China, as such all exploration and evaluation expenditure incurred since the grant of a business licence had been capitalised as exploration phase expenditure. This capitalisation is subject to continuous critical review.

As at 30 September 2012 the amount of liabilities arising from the exploration for and evaluation of mineral resources is \$376,965 (31 March 2012 \$42,391, 30 September 2011: \$485,305).

The results of drilling at all tenements have not been as encouraging as hoped. All current drilling programmes have ceased and the Group intends to sell all tenements in their current state. The

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

Directors have impaired the carrying value of the tenements based on the Directors' best estimate of the likely sales price of each tenement.

The capitalised exploration and evaluation expenditure carried forward has been determined as follows:

2012 2012 2011 Unaudited Audited Unaudited 6 Months 12 Months 6 Months \$ \$ \$ Exploration phase: Opening Balance 5,611,354 2,820,356 2,820,356 Foreign Exchange on Opening Balance (1,757) 38,450 105,524 Expenditure incurred during the Period 968,547 2,776,688 1,977,611 Expenditure written off during the Period (Refer note 3) (5,628,144) - - Amoyitele expenditure written off due to sale (Refer note 3) - (7,782) Beyinhar North expenditure written off due to sale (Refer note 3) - (16,358) Closing Balance 950,000 5,611,354 4,885,607	30 September	31 March	30 September
			(4,028)
			(13,856)

The exploration and evaluation expenditure has been allocated across the following prospects:

Prospect	30 September 2012 Unaudited 6 Months \$	31 March 2012 Audited 12 Months \$	30 September 2011 Unaudited 6 Months \$
Sonid North	650,000	1,974,128	1,528,585
Naogaoshandu	100,000	255,518	253,650
Marmot	100,000	479,617	491,873
Bu Dun Hua	100,000	2,902,091	2,611,499
Total Exploration and Evaluation Expenditure	950,000	5,611,354	4,885,607

Operating Leases:

Inner Mongolia Plate Mining Limited in its capacity as lessor has granted leases for the mining of Iron Ore over its exploration licences and received the following income:

Prospect	30 September	31 March	30 September
	2012	2012	2011
	Unaudited	Audited	Unaudited
	\$	\$	\$
Naogaoshandu	-	75,103	38,438
Marmot	21,390	16,461	-
Total Lease Income	21,390	91,564	38,438

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

7. SHARE CAPITAL

Issued Share Capital

Issued share capital is represented by:
	30 September 2012 Unaudited			31 March 2012 Audited			30 September 2011 Unaudited
	Number of Shares	Issue Price \$	Average Issue Price \$/Share	Number of Shares	Issue Price \$	Average Issue Price \$/Share	Number of Shares	Issue Price \$	Average Issue Price \$/Share
Opening Balance	166,287,552	16,992,950	0.10	166,287,552	16,603,068	0.10	166,287,552	16,603,068	0.10
Shares Issued Capital Raising Costs	30,913,452 -	510,072 (34,175)		- -	- -		- -	- -
Options Expired	-	-		-	389,882		-	389,882
Closing Balance	197,201,004	17,468,847	0.09	166,287,552	16,992,950	0.10	166,287,552	16,992,950	0.10

All shares are fully paid and rank equally with regard to voting rights and distribution of profit.

30,913,452 new shares were issued in September 2012. All shares have no par value, are fully paid and rank equally with regard to voting rights and distribution of profit.

Share Options

Options are currently issued to directors and four employees.

Options exercisable as at balance date are as follows:

			Unaudited	30 September 2012	31 March 2012 Audited			30 September 2011 Unaudited
			Average exercise price in \$A		Average exercise price in \$A		Average exercise price in \$A
	Expiry date		per share	Options	per share	Options	per share	Options
At 1 April	4 May 2011	*			0.30	6,279,999	0.30	6,279,999
At 1 April	29 July 2014	*	0.10	3,100,000	0.10	3,100,000	0.10	3,100,000
At 1 April	25 March 2016	*	0.12	500,000
At 1 April	29 July 2016	*	0.12	2,900,000
Granted	25 March 2016	*			0.12	500,000	0.12	500,000
Granted	29 July 2016	*			0.12	2,900,000	0.12	2,900,000
Forfeited			-	-	-	-	-	-
Exercised			-	-	-	-	-	-
Lapsed	4 May 2011				0.30	(6,279,999)	0.30	(6,279,999)
			0.11	6,500,000	0.11	6,500,000	0.11	6,500,000

At the 31 March 2008 Annual General Meeting, an employee share option scheme was adopted. This resolution enabled the board to issue shares and options to acquire ordinary shares. Under that resolution 400,000 options were approved by the Board to two selected employees.

Following this at the 31 March 2009 Annual General Meeting held 29 July 2009, shareholders passed a resolution authorising the Board to grant 900,000 options to each of the executive directors being Stephen McPhail, Bruce Bell and Fu La or 2,700,000 options in total to executive directors.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

Both sets of options were issued under the employee share purchase scheme on 31 August 2009. These have vested 33% on 29 July 2010, 33% on 29 July 2011 and 34% on 29 July 2012.

A further 500,000 options were approved by the Board for one selected employee on 9 May 2011. These have vested 33% on 25 March 2012 and will vest 33% on 25 March 2013 and 34% on 25 March 2014.

At the 31 March 2011 Annual General Meeting held 29 July 2011, shareholders passed a resolution authorising the Board to grant 800,000 options to each of the executive directors being Stephen McPhail, Bruce Bell and Fu La or 2,400,000 options in total to executive directors. In addition a further 500,000 options were issued to two selected employees under the same conditions.

Both sets of options were issued under the employee share purchase scheme on 29 July 2011. These have vested 33% on 29 July 2012 and will vest 33% on 29 July 2013 and 34% on 29 July 2014.

The fair value of outstanding options (calculated using a binomial valuation model) and the significant inputs into the model are shown below:

Fair Value of Options to the Company Significant Inputs into Pricing Model

	Number of		Total Fair
	Options	Fair Value of	Value of	Share	Risk Free	Price
Expiry Date	Granted	each option	Options	Price	Interest Rate	Volatility
		\$	\$	\$	%	%
29 July 2014	3,100,000	0.0643	199,330	0.10	4.920	120
25 March 2016	500,000	0.0748	37,400	0.12	5.285	112
29 July 2016	2,900,000	0.0576	167,040	0.12	4.950	111
	6,500,000		403,770

8. INVESTMENT IN SUBSIDIARIES

Name of Subsidiary	Principal Activity	Equity Holding
		30 September	31 March	30 September
		2012	2012	2011
		Unaudited	Audited	Unaudited
Inner Mongolia Plate Mining Co Limited	Exploration	90%	90%	90%

On 8 March 2006, King Solomon Mines Limited and Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited signed an agreement to form Inner Mongolia Plate Mining Co Limited, a sino foreign equity joint venture of which King Solomon Mines Limited owns 90% and Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited holds 10% in trust for King Solomon Mines Limited due to Chinese regulatory requirements.

As King Solomon Mines Limited effectively owns 100% of this subsidiary and retains all the risks and rewards of ownership, the Group has not accounted for any minority interest. Inner Mongolia Plate Mining Co Limited has a balance date of 31 December in line with Chinese regulatory requirements.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

9. EARNINGS PER SHARE

	30 September	30 September
	2012	2011
	Unaudited	Unaudited \$
	\$
Loss from continuing operations attributable to equity holders of
the Company	(6,008,953)	(220,531)
Weighted average number of ordinary shares on issue	170,848,553	166,287,552
Basic earnings per share from continuing operations(\$ per share)	(0.04)	(0.00)
Diluted eranings per share	(0.04)	(0.00)

The Group recorded losses for the periods presented. Diluted losses per share have not been calculated as the effect of including the share options would be anti-dilutive. Hence the diluted earnings per share is the same as the basic earnings per share.

10. RECONCILIATION OF FINANCIAL PERFORMANCE AND OPERATING CASH FLOW

	30 September 2012	30 September 2011
	Unaudited	Unaudited
	\$	\$
(Deficit) for Period	(6,008,953)	(220,531)
Non Cash Items
Amortisation	30	301
Depreciation	10,050	9,190
Gain / (Loss) on Sale from Fixed Assets	1,693	(21,605)
Write Off of Exploration Expenditure	5,628,144	17,884
Share Options	54,220	52,253
Foreign Exchange	(6,596)	(210,966)
Movement in Working Capital
Other Receivables - Related Parties	260	18,062
Other Receivables - Tax on Interest	24,904	(3,073)
Other Receivables - Other	(18,399)	(11,811)
Prepayments	9,543	(9,354)
Accounts Payable - Related Parties	(42,404)	959
Accounts Payable - Other	251,515	425,394
Items classified as Investing Activities
Increase in Accounts Payable for Exploration	(334,574)	(363,949)
Items classified as Financing Activities
Increase in Accounts Payable for Financing	(7,671)	-
Net Cash used in Operating Activities	(438,238)	(317,246)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

11. COMMITMENTS, CONTINGENT ASSETS AND LIABILITIES

The Company and Group leases property in New Zealand and China and has one non cancellable operating lease terminating 1 April 2013. The Group has the first call when this lease comes up for renewal in China.

On 1 January 2009, Bodhi Svaha Holdings Limited, Selwyn Geosurveys Limited and Inner Mongolia Ao Meng Xin Economic and Trade Co Limited agreed to reduce their respective fees due under their services agreements with the Company by 20%. Under these services agreements, they respectively provide the services of Stephen McPhail, Bruce Bell and Fu La.

Payment of the forgone services fees incurred remains contingent on a change in circumstances for the Company defined to be any of the following events:

• a) Control Event taking place
• b) Termination by the Company of a Services Agreement without cause
• c) The Company having at least \$7,500,000 in cash or cash equivalent

A Control Event includes

• 1) A person securing control of 40% of voting rights in the Company
• 2) Sale of the Company or all of its assets
• 3) Merger of the Company with another party

Accordingly the amount shown below has not been recognised as a liability in these accounts but is instead recorded as a contingency.

Services agreement fee to Bodhi Svaha Holdings Limited \$ 135,000 Services agreement fee to Selwyn Geosurveys Limited \$ 149,743 Services agreement fee to Inner Mongolia Ao Meng Xin Economic and Trade Limited \$ 112,500

As recorded in note 7, the Company currently has 6,500,000 options issued to executive directors and selected employees. Options are being expensed in the periods in which the options vest. Total option valuation was calculated at \$403,770 (30 September 2011: \$403,770) of which \$54,220 has been expensed for the six months ended 30 September 2012 (30 September 2011: \$52,253).

In addition the company committed to issue a further 1,000,000 options to Dayton Way Financial Pty Ltd., as part of the consideration in arranging the issue of shares allotted 3 September 2012. These options have an exercise price of \$0.05, expire 3 March 2014 and have a calculated valuation of \$8,041.

The Group had no other commitments, nor contingent assets or liabilities at 30 September 2012 (30 September 2011: \$Nil).

12. TRANSACTIONS WITH RELATED PARTIES

King Solomon Mines Limited provided funds to Inner Mongolia Plate Mining Limited, a subsidiary of King Solomon Mines Limited, as share capital and advances.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

Payment for consulting fees and reimbursement of expenses was made to Stephen McPhail (Director and Shareholder), Bodhi Svaha Holdings Limited and Black Box Spatial Limited being companies in which Stephen McPhail has an interest.

Payments for consulting fees and reimbursement of expenses were made to Selwyn Geosurveys Limited and Black Box Spatial Limited being companies in which Bruce Bell (Director and Shareholder) has an interest.

Payment of consulting fees, reimbursement of expenses and funding for Inner Mongolia Plate Mining Limited was made to Fu La (Director and Shareholder) and to Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited being a company in which Fu La has an interest.

Payment of director fees and expenses were made to John Quinn (Director and Shareholder) and to Widespread Limited (Shareholder) for Chris Castle (Director).

Payment for wages and reimbursement of expenses was made to Anna Di (Shareholder).

Payment for accounting fees was made to Michael Wilcox (Shareholder).

RELATED PARTY EXPENDITURE	30 September 2012	31 March 2012	30 September 2011
	Unaudited	Audited	Unaudited
	\$	\$	\$
Directors
Black Box Spatial	-	(29)	(29)
Bruce Bell	2,341	590	-
Bodhi Svaha Holdings Ltd	85,248	170,316	86,913
Fu La	50,272	326,531	51,427
Inner Mongolia Ao Meng Xin
Economic and Trade Co. Limited	60,000	807,333	168,608
John Quinn	35,497	87,946	52,793
Selwyn Geosurveys Ltd	92,600	204,683	109,041
Stephen McPhail	8,138	1,588	490
Widespread Limited	20,126	38,845	18,702
Shareholders
Di Anna	10,610	19,959	10,800
Michael Wilcox	17,536	26,861	15,857
	382,368	1,684,623	514,602

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

OWING TO RELATED PARTIES	30 September 2012 Unaudited \$	31 March 2012 Audited \$	30 September 2011 Unaudited \$
Directors
Bodhi Svaha Holdings Ltd	14,199	14,205	14,299
Fu La	726	45,714	-
# Inner Mongolia Ao Meng Xin
Economic and Trade Co. Limited	840,525	840,525	-
Selwyn Geosurveys Ltd	13,179	15,933	17,974
Stephen McPhail	6,907	277	-
Shareholder
Di Anna	803	789	792
Michael Wilcox	8,113 884,452	9,413 926,856	9,412 42,477
OWING BY RELATED PARTIES	30 September	31 March	30 September
	2012	2012	2011
	Unaudited	Audited	Unaudited
	\$	\$	\$
Directors
* Fu La	-	-	4,590
* Selwyn Geosurveys Ltd	1,600	1,934	1,585
Stephen McPhail	74	-	463
# Inner Mongolia Ao Meng Xin
Economic and Trade Co. Limited	840,525	840,525	-
	842,199	842,459	6,638

* These represent advances for exploration expenditure.

# These represent funding advances to Inner Mongolia Plate Mining Co Limited through Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited.

13. FEES TO AUDITORS

Fees payable to the auditors for the review of the financial statements for the six months to 30 September 2012 amounted to \$10,268 (30 September 2011: \$9,799).

14. SUBSEQUENT EVENTS

The Company issued 25,938,256 shares to existing shareholders at \$0.0165 per share for a total of \$431,363 on 15th October 2012.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

The Company issued 1,000,000 options to Dayton Way Finanacial Pty Ltd., on 29th October 2012 as part of the consideration in arranging the issue of shares allotted 3 September 2012. These options have an exercise price of \$0.05, expire 3 March 2014 and have a calculated valuation of \$8,040.

The Company issued 1,800,000 employee options on 17th October 2012 with an exercise price of \$0.033, expiry date of 4th October 2015 and a calculated valuation of \$22,680.

There are no other subsequent events for this period.